For those interested in issues such as climate change, social inequity, and the financial crisis, join me in a dialogue to explore the challenges and opportunities associated with sustainability and the role of business in a sustainable society.

Thursday, September 24, 2015

5 Business Strategies for Sustainability

The
term sustainability or corporate social responsibility has
grown increasingly prevalent in corporate boardrooms and on executive
agendas. In a study of 766 CEOs
worldwide, KPMG concluded “that sustainability is truly top-of-mind for CEOs
around the world”[i]. Growing pressure to respond to issues of
climate change, the financial crisis, environmental degradation, and increasing
social inequality have precipitated the diffusion of sustainability in internal
business text, company websites, CEO speeches, and company reporting[ii].
CEO action on sustainability issues has shifted from being a discretionary
choice to a corporate priority with 93 percent of executives claiming that
sustainability issues will be critical to the future success of their business
and 80 percent saying that in 15 years a majority of companies globally will
have incorporated sustainability [iii]. In a recent study, McKinsey concluded: “the
choice for companies today is not if, but how,
they should manage their sustainability activities”[iv]
with 96 percent of CEOs believing that sustainability issues should be fully
integrated into the strategy and operations of a company.

In
response, CEOs regularly tout their efforts to “embed” or “weave”
sustainability into their operations and culture as the ultimate commitment[v]
while scholars and practitioners have offered a number of prescriptions to
achieve this objective[vi].
Yet despite the prevalence of sustainability and corporate social
responsibility, there is tremendous variation in how companies have responded. Part of this variation can be explained by
the lack of standardized definitions available, leaving the movement open to
various managerial interpretations that influence the type of responses by a
given firm. That said, research has
shown that companies can be categorized into specific adoption levels of
sustainability according to important organizational dimensions.

Before
continuing, let’s define some terms. Sustainability is defined here as the
long-term maintenance of systems according to environmental, economic, and
social considerations. Ecological systems
might include water systems, the climate system, biodiversity, or species
reproduction. Economic systems would
encompass the global financial system, income equality, the free flow of goods
and services while social systems might include things like the proper
functioning of
civil society, low
poverty rates, the education
or health
systems,
social justice, or the food system. Business sustainability or corporate
social responsibility can then be defined as the achievement of economic
viability (i.e. profitability and competitiveness) while operating within the
capacity, or contributing to the integrity, of social, economic, and ecological
systems. For example, companies that
take business sustainability or CSR seriously would be figuring out how to be
profitable while preserving biodiversity or, more impressively, contributing to
the integrity of existing ecosystems.

Almost
all public companies and most non-public companies lay claim to the notion that
they are doing something to preserve these systems either by minimizing harm (i.e.
negative externalities) or finding ways to reinvigorate and improve these
systems. But any smart student of
business would be interested in distinguishing responses
that negatively affect these
systems. One of the ways to do this is
to consider the relevance of these responses to the core strategy and
operations of the firm. When
students of business want to know what makes a business tick, they typically
turn to its strategy. A firm’s strategy can be determined
using three factors: 1) its positioning in the marketplace relative
to competitors, 2) its core competencies that
differentiate it from those competitors, and 3) its underlying culture that clarifies to employees the
underlying purpose and identity of the organization,
supported by structures, processes and policies. First, positioning
goes beyond marketing and represents a unique value proposition to consumers
that distinguishes the firm from its competition. Wal-Mart’s positioning is the low cost leader
while Apple’s positioning is innovativeness and high quality. Marketing is important in conveying this
image to outside actors but positioning is supported by strong evidence that
supports these claims (e.g. Wal-Mart’s low prices). Second, strategy is very much about what the
company does really well that
is valuable and unique (its core competencies) that competitors find very difficult to imitate
or find substitutes for. This might include particular individuals
employed by the firm (e.g. Steve Jobs), specific decision-making processes, unique
products, a strong brand, innovation practices, intellectual property, highly
valuable machinery or low cost operations.
Finally, external positioning and internal competencies must be
supported by an organization’s culture and identity that transcends the
worldviews of employees to the point where they see the relevance of the firm’s
strategy to their daily activities, making it feel like employees live this
strategy on a daily basis. On what employees are
rewarded,how they are trained, how decisions are made, and company policies and
mission statements all support culture.

With
the above in mind, it is possible to categorize companies into one of five
business strategies for sustainability beginning on the one hand with
businesses that separate sustainability from strategy and ending on the other
hand where sustainability defines their strategy.

Strategy #1: Denial

In the first strategy,
sustainability and CSR are highly irrelevant to the firm’s strategy. Any involvement in social or ecological
issues is relegated to philanthropic contributions that have very little to do
with the firm’s core operations. Here
the purpose is to build social goodwill to oftentimes combat any negative
publicity that might be associated with their core operations. Any public criticism of the firm is deflected
as managers vehemently deny any wrongdoing or responsibility. The tobacco industry for years denied any
responsibility for the link between their products and various forms of cancer
in the same way that the food industry today denies responsibility for obesity
and other related health issues associated with food. Associations representing restaurant or food
production companies are often heard arguing that the unprecedented growth of
food-related
health problems is hardly a problem of the food itself but much more a problem of
personal responsibility and a deficit in exercise. Unrelated to food health,
the association representing fast food restaurants launched an ad in Times
Square denying any responsibility for the growing dependence of their own
employees on government assistance and arguing against any need on their part
to increase employee pay to a living wage because these employees have no skill
or experience and are often lazy. Nike in the 1990s denied responsibility for
the growing instances of labour issues in developing countries because the
suppliers making their products were distinct entities and therefore not under
the responsibility of Nike. Ultimately,
companies will often say that nothing they are doing is against the law and so
they are doing nothing wrong.

The
Denial Strategy omits any use of sustainability or CSR in its competitive
positioning and at most would rely on its disconnected philanthropic
contributions as part of their marketing strategy to suggest that the company
is a good corporate citizen. In fact,
companies adopting this approach are heavily reliant for their success on
practices that are particularly corrosive to social, ecological, and economic
systems. Although growing more rare,
companies may actually promote this positioning as did low end burger chains
like Harvey’s or A&W that went with a positioning that countered any need
for healthy food by allowing consumers to indulge to avoid any compromise on
taste. More common though would be a
particular positioning that very much relied on the erosion of social or
ecological systems where denial of responsibility is oftentimes the only
option. Ashley Madison is an organization whose
fundamental premise is based on a service that a
majority of society argues erodes
social systems. Cash for money retailers
can be classified under this strategy as well because their positioning as a
source of capital for those consumers typically unable to get credit naturally positions
the firm as an exploiter of vulnerable consumers. Big banks, at least in Canada, have avoided
this low end market because, although legal, they do not want to position
themselves in such a way that leads to outcomes that can be perceived by many
as exploitative.

The
companies in this category are therefore dependent on unrelated
philanthropic
initiatives that aim to distract stakeholders from the impact of their core
operations. If they
pursued philanthropy for projects meant to counter the negative impact of their
operations, they would be admitting guilt to a degree. McDonald’s
children’s charity has attracted substantial criticism due to the claims it
makes for improving the lives of children yet ignores the health impacts of
their products and the marketing tactics that have historically targeted
children. CIBC’s
Run for the Cure, although a worthy cause, ignores how their everyday decisions
associated with capital lending might actually be greasing the wheels of those
companies making products that have shown linkages to cancer.

From
an internal competence perspective, what distinguishes the firm from its
competitors has virtually nothing to do with sustainability. In fact, their source of distinction
represents a key erosion of social, ecological, and economic systems. Consider gun manufacturers, tobacco companies
and weapons manufacturers, all of whom have developed strong competencies
related to their products whether it be design innovation, the manufacturing
process, or logistics. But what is
unique and difficult to imitate in these organizations are the very things that
contribute to system erosion.
Culturally, employees see virtually no relevance of sustainability to
their daily operations and at most consider the company’s identity to revolve
around some philanthropic endeavors. Internal
processes, reward systems, performance evaluation and employee skill and
training have virtually nothing to do with sustainability.

Strategy #2: Defensive

In the second strategy, companies
have moved beyond denial of responsibility and have begun to admit that they are
partly responsible for the erosion of certain social, economic, and ecological systems. Unlike the previous strategy where companies
feel that there is no need to adjust operations, the companies in this strategy
work to lower their impact incrementally but avoid any serious reconsideration
of their strategy. The overarching
objective here is to continue with business as usual but with some minor
adjustments to respond to upcoming regulation or consumer pressure. In other words, companies are starting to
lose the argument that they are not responsible for system degradation and so
want to show that they are responding to pressures of stakeholders, especially
consumers.

One
response is to engage in philanthropic activities that are more associated with
the impacts of their operations. This
helps them defend their operations because they can lay claim to the fact that
they are at least redistributing some of the profit associated with these
operations to various causes that work to stem their effects. Tim Hortons recently did this. One
has to have a sense of humour to not balk at the company’s initiative to raise
money for child food education by selling sugar-laden cookies through their
Smile Cookie Program. This is an
excellent example of avoiding changes to their core operations of food and
instead launching philanthropic initiatives to show that they care about these
issues. Oil and gas companies have also
undergone tremendous criticism for touting their commitment to reducing climate
change but have invested substantial resources in lobbying against policies
that would support renewable energies such as wind and solar. The Guardian reported that The European
Commission’s outlawing of subsidies for clean energy were largely requested by
BP, Shell, Statoil and Total, and by trade associations representing oil and
gas companies[vii].

Another
very common response in the defensive strategy is for companies
to aim for the low
hanging fruit; a common expression that refers to those initiatives that
represent relatively easy changes that at the same time make obvious business
sense. The most common initiatives are
related to reductions in energy and fuel use in manufacturing processes or a
reduction in waste through an increase in resource efficiency coupled with an
increase in recycling efforts. Mining
companies, for instance,
have begun to tout “green mining” to represent incremental improvements in
power and fuel use along with reductions in toxicity, emissions, and water
use. Thinking beyond just the ecological dimension,
an investment bank might indicate that they have reduced their portfolio of
subprime loans from 60% to 40% or a fast-food chain might announce that they are
reducing sugar and salt content of existing products by 15% over the next
several years. Companies are therefore
positioned as the sustainability leader based on all of the ways that they’ve
worked to reduce the impact of their existing operations, products and services
on systems. But the fundamental business
practices have not changed. They have merely become more efficient or
incrementally less impactful.

Internally, core competencies remain
associated with practices that are associated with system degradation. That said, some companies might develop
competencies in their brand as stakeholders perceive a certain company as a
leader in making incremental improvements to their impact. Other companies may develop expertise
associated with resource efficiency that competitors have been unable to
replicate. Culturally, employees are
likely unaware of any positioning around sustainability and more directly
associate any improvements to representing an important and natural part of
business improvement. So
whereas the company may be successful in creating a responsible image to
broader society through philanthropic contributions, it's identity internally
does not at all reflect sustainability. Performance evaluations are tied
to cost reductions efforts that just so happen to be associated with
environmental system improvements for instance, but there is
very little in the way of accountability towards social and ecological goals
across levels of the business.

Strategy #3: Isolated

The third strategy is one where
sustainability begins to make substantial inroads into the firm’s strategy and operations. This typically involves an entire department
or product line being positioned according to sustainability. Remnants of more radical changes to
sustainability begin to emerge such as Nike’s green shoe initiative where
consumers can design their own shoes using environmental benign materials. Another example might be a manufacturing
firm’s use of a new technology that cuts emissions by 90% such as Vale Inco’s supposed
plans to use
a carbon sequestration scheme in Sudbury, Ontario that would replace one of Canada’s
largest smokestacks. Another example
might be a retail company’s efforts to fuel half of the energy required to operate its stores using renewable
energy sources such as wind and solar.

The
important difference from the second strategy is that the company has begun to
innovate in ways that have revolutionized a particular product or process
resulting in a substantial reduction in social, ecological, or economic system
degradation that goes well beyond incremental improvements. Under the second strategy, improvements are
limited by an improvement ceiling because the process or product itself is
oftentimes inherently unsustainable. The
third strategy questions the fundamental design of the product/service or the process of interest, thereby
sidestepping the ceiling. Clorox, the consumer packaged goods company,
launched a highly popular Greenworks line that represents an isolated brand in
the minds of consumers. In this example,
the product category is not associated with Clorox in the minds of the consumer
but nevertheless represents an important strategic endeavor by the firm. We can see similar types of initiatives in
the social realm as well. Food manufacturers have either developed their own
highly sustainable products or they might purchase healthy brands such as
PepsiCo’s purchase of Naked Juice. A
mining company, as another example, might take a much more comprehensive
approach to community development surrounding one or two of their mines but
relies predominately on donations and philanthropy on the remainder of their
mines. Or they might
introduce a technology that dramatically reduces the use of water An oil and gas company might have a
full-fledged renewable energy program, staffed within a legitimate department such
as BP that is distinct from its core operations of oil and gas exploration and
production that can still result in catastrophic environmental
damage. Finally, Toyota introduced a
vehicle part that removed completely the need for a particular toxic mineral.

A firm’s positioning in the
marketplace then represents somewhat of a contradiction because, on the one
hand, a part of their operations or a small section of their product line
exemplifies sustainability principles but, on the other hand, the remainder of
their operations is non-sustainable or continues to be criticized as such. As a result, companies adopting this strategy
will not necessarily lay claim that their positioning embodies sustainability
but they will tout their efforts to make this a core part of their strategy by
reflecting on the resources allocated to efforts to challenge certain sections
of their products/services and operations.
In their attempt to distinguish a firm between strategy 2 and 3,
students of business need to examine to what extent these initiatives represent
a substantial part of their strategy or, as the second strategy described, do
they instead represent a means to mask the system degradation of their
traditional operations. In other words,
do these initiatives represent a substantial business endeavor that generates a
substantial portion of revenue that positions them relative to competitors
(beyond marketing)? If genuine, managers
may position the firm as a leader in sustainability innovation but the
innovation, while noteworthy if not groundbreaking, represents a small part of
the firm rather than, as will be
described
in Strategy 4, a key part of the firm’s DNA.
Incidentally, many
firms do well with this strategy partly because of a number of third party
ranking bodies that tend to be more attracted to key initiatives undertaken by
the firm in contrast to the extent to which the firm lives and breathes sustainability.

Internally then, firms adopting
strategy 3demonstrate isolated
yet highly lucrative competencies that are more typically found in pockets of
the firm. They may have a particular
product that is so revolutionary in its benefit for the environment or consumer
health that, despite their other operations, represents a highly innovative
capability that could be replicated internally in the firm but is hard to
replicate by competitors. When Toyota
came out with the Prius as the first hybrid vehicle, they demonstrated a highly
lucrative core competency that competitors could not duplicate for quite some
time. The process behind the development
of this technology was highly valuable for the firm. Oftentimes companies, in the absence of core
competencies in the area of sustainability, will acquire firms that have these
competencies with the alleged intent to slowly integrate this way of thinking
into its mainstream product lines (more often than not, this
doesn’t actually happen).
Common across the acquisition versus greenfield approach to sustainability is
that there is potential, however remote, for these
initiatives to gain greater traction in the organization. Bottom line is that while the core
competencies associated with sustainability might be isolated from other
competencies that conflict with sustainability, this strategy is the first of
the five to show strategic relevance of sustainability.

From
the perspective of employees, strategy 3 creates a very bizarre identity as
they might find it
difficult to pinpoint just who they are and who they are not. If sustainability exists in an isolated
department, employees not in this department often consider sustainability to
be irrelevant to their daily operations. In fact, the existence of a sustainability
department has been
found to give employees a license to continue on with business as usual or, in
some cases, to operate even more egregiously in their degradation of social, ecological,
and economic systems. Business schools
themselves have fallen victim to this problem as core business courses were
given a license to “stick to the basics” because new departments operating
under the label corporate social responsibility and corporate sustainability
were meant to sensitize future managers to some of the complications arising
from putting these core courses into practice. Ironically, the influx of specializations in
sustainability in business schools inadvertently pushed mainstream professors to avoid
thinking more critically about how their course might be partly responsible for
some of the system level issues we’ve been seeing.

Other
businesses may simply consider sustainability to be one of the many things that
they do and don’t hide the fact that there is a contradiction because, in their
mind, they are simply responding to the highly diverse set of demands in the
marketplace at the time. From a systems and process perspective, no
doubt there are likely job descriptions that relate directly to sustainability
initiatives. This can go as high up as a
Vice-President as in the case of Centerra Gold where there is a VP – Sustainability
& Environment. But in most cases, the highest
position tends to be at the director role as is the case at Loblaw
Companies. From a performance appraisal
point of view, only a selected group of employees, managers and directors would
be held accountable for performance indicators related to sustainability. Decision-making at the organization, at most,
will have sustainability as one of its key decision criteria but more often
will not consider sustainability in its decisions because, again, a department
or group of employees and managers is doing that for them.

Strategy # 4: Embedded

The
fourth strategy sees sustainability infiltrated throughout the firm where,
unlike the previous strategy, sustainability is no longer relegated to a
particular department among some isolated die-hard employees or reflected in one
or two product lines but is instead present in all aspects of the business
across all products and services and among most, if not all, employees. From a competitive positioning standpoint,
sustainability represents THE key differentiating factor among
competitors. While there might be other
factors that differentiate the firm in the marketplace (e.g. customer service),
stakeholders consider the firm’s primary value proposition to be related to its
commitment to sustainability. That is,
consumers are loyal to the company because they can count on the fact that all
products and services,
and the operations used to support the design, manufacturing, and distribution
of those products and services, reflect
sustainability principles.

Many
companies adopting this strategy tend to be smaller simply because the market
isn’t large enough to support the business.
That said, those consumers who are supportive of these businesses,
however niche in nature, are more willing to pay premium prices that support
the extra costs that often come with these practices. The value these businesses create for
consumers above and beyond the alternative include
health and safety, poverty reduction, the responsibility that comes with
environmental conservation and, perhaps less intuitively, a desire to be
associated with a company or brand that aligns with their values. This latter,rather less studied, reason has important
implications for competitive positioning because it offers consumers an
opportunity to be activists through their purchasing power. Patagonia, for instance, is a good example of
a company that has clearly differentiated itself from competitors like North
Face or Timberwolf. They command a
premium price for their products but the philosophical value alignment they
facilitate for their consumers justifies the price increase. Other examples include Ben and Jerry’s,
Interface Carpets, and Level Ground Trading.

On
the surface, companies adopting this strategy possess similar capabilities as
those companies adopting the third strategy.
That is, their unique products and services might be difficult for
competitors to replicate or the processes behind the creation and delivery of
these products and services might be inimitable. But the fourth strategy reveals additional
competencies that are higher in levels of complexity. Complexity is high when there are a large
number of interdependent parts or actors that collectively create an
unpredictable pattern of behaviour as they respond dynamically to their respective
local environments. Complexity is
important when considering internal competencies because the higher the
complexity of a given competence, the more difficult it is for a competitor to
copy or substitute it. In fact, the company itself struggles to
figure out how they were able to develop these competencies. One
common source of competitive advantage for companies adopting strategy 4 is its
culture. Culture is often defined as a
set of values and belief systems that guide individuals in a particular group
or organization. Oftentimes, companies
that embed sustainability have a very strong culture where employees, feeling
that they are part of something that aligns closely with their values, are more
productive and committed to their work. These
companies often refer to how close they are with their fellow employees, how
collaborative they are in their work, and how there is very little politics
that erode workplace performance. Unlike companies adopting the third strategy
where sustainability related capabilities are confined to one department or
small group of employees, capabilities are often at the firm level, crossing
functional areas as employees, in their daily behaviour, interact in ways that
create innovative forms of value for consumers and
other stakeholders..

The
interesting thing about this strategy is that employees of these companies,
when asked about what they do in their job that demonstrates their commitment
to sustainability, struggle to answer the question because they don’t see
sustainability as distinct from their daily routines and activities. This is an important paradigm shift from
strategies 1, 2, and 3 because employees of the company struggle to understand
how the business could exist without sustainability filtered through their
daily activities just like employees of strategies 1, 2, and 3 struggle to
understand how sustainability could at all be relevant to their daily
operations. The identity associated with
businesses adopting this strategy tends to revolve around a sustainability leader,
consciously distinct from companies that do not take sustainability
seriously. Unlike
strategies 1and 2 then, the identity of employees and image to outside actors
are aligned. Most, if not all, levels of
the organization have performance indicators related to sustainability and decision-making
processes incorporate social and ecological indicators.

Strategy #5: Transformational

The fifth and final strategy is
called transformational because companies adopting this strategy make
substantial changes to the external environment in which they operate. The external environment can be defined here
as an industry, supply chain, local community, or even broader society in which
the company operates. Unlike the
previous strategy where the focus was on diffusing sustainability within the firm,
the focus in this strategy is facilitating more sustainable practices outside
the firm. Many academic scholars and
practitioners alike have come to the realization that no organization can
single-handedly make substantive strides to sustainable practices.
Wal-Mart, McDonald’s, Starbucks, and Google, no matter how genuine they
might be or how embedded sustainability might be internally, can
only push the envelope on
sustainability if they facilitate change among multiple, highly interconnected
actors in their supply chain and industry.
Interface Carpets is a US-based carpet company that has pioneered a
number of technologies that have revolutionized the once very toxic carpet
industry. But a key difference from the
fourth strategy is that their focus wasn’t just on embedding sustainability, it
was about rewriting the regulations associated with the carpet industry by
demonstrating that more sustainable modes of manufacturing carpet were possible. They also constructednew norms in the industry that forced a number of
competitors that had no interest in sustainability to jump on board. That is, the mainstream market, which
consisted of large industry government facilities purchasing industrial carpet,
now expected that Interface competitors offer a similar portfolio of sustainable products.

When done successfully, the
strategic benefits become quite lucrative for businesses that adopt this
strategy. Competitive positioning
becomes one of leadership where competitors look to the company for the next
wave of technological innovation that they too need to adopt or, at least, be
mindful of the market’s response to what the company is doing. Even more lucrative is when government,
always uneasy about setting harsh social and environmental regulation that
might stifle growth and job creation, establishes regulation that is based on
what the company has in fact proven to be possible, without the economic costs
governments want to avoid. SEKEM is an
organic conglomerate located just outside Cairo, Egypt that specializes in
agricultural commodities for a wide range of industries. Established in the late 1970s, the company was
so transformative in its business model that it single-handedly convinced over
800 Egyptian farmers to transition their practices to organic cultivation in
exchange for guaranteed access to the European market. SEKEM’s own ‘mother farm’ was so advanced in
its agricultural practices environmentally and socially that the Egyptian
government established regulatory policies in the agriculture sector based
partly on what SEKEM proved was possible. Imagine that, organic farming in the middle
of the desert.

Another
interesting dynamic associated with competitive positioning for this strategy
is that the rivalry among competitors that typically exists in strategies 1-4
is much lower. Rivalry is lower because for
any transformation to take place in an industry, it is easier to have
competitors on board for the change.
This sounds counter-intuitive because competitors are supposed to
‘compete’. But evidence in the last
decade suggests otherwise. Open source
innovation is a relatively new practice where multiple competitors join forces
to innovate in ways that no individual company could possibly innovate. This requires the sharing of important
intellectual capital. Patagonia’s
business model is predicated on the notion that it is meant to share any of the
new innovations they encounter in the development of more environmentally
sustainable apparel. Similarly, leading CEOs, such as Tesla CEO
Elon Musk have been quoted as saying that trying to establish a monopoly in
their industry is counter to the goals of sustainability because it delays the
establishment of a much needed industry standard all competitors can adopt to move
forward and leave less sustainable practices behind. Think
about the old BETA/VHS
war (for those who are old enough) or the more recent HD-DVD/blu-ray
war where the supply chain had
to wait to figure out which standard would become dominant. Companies in the transformative
strategy want to avoid these standoffs and establish a common standard that
competitors can use as well. Leading
electric car companies could have put forth separate and
technologically-specific charging facilities in the hope of being the VHS or
Blu-Ray winner. But at least two leading
CEOs have instructed governments in the jurisdiction that they were considering
entering that any charging infrastructure must be universal and therefore
usable by competing electric car companies.
Another reason why rivalry must be lower is that companies need to
collaborate to avoid the tragedy of the commons. Absent government regulation, natural
resources such as a fish species, water or clean air would be depleted if
companies behaved independently.
Transforming an entire industry away from unsustainable practices, such
as fishing in a remote coastal region, requires collaboration among large
groups of fishing companies.

The
transformative strategy then can only be transformative if networks of actors
are created. In addition to combining forces to innovate, competitors
and players along the supply chain (customers and suppliers) often come together to self-regulate in ways
that governmentshave struggled. Consider
the diamond mining industry where several leading diamond mining companies
partnered to impose peer pressure on the industry to stem conflict diamond
mining. The Equator Principles is a
similar platform through which major global banks, including CIBC and Royal
Bank of Canada, agreed to prohibit any loaning of capital to projects in
developing countries of the world that carry substantial social or
environmental risks to its citizens. In
the absence of any governing body with the power to develop and enforce such a
policy, these banks, through peer pressure, have pushed the industry in a
direction that fosters more sustainable lending practices.

A critical source of competitive
advantage for companies adopting strategy 5 is their ability to foster
relationships with key actors in its external environment. If the company is going to effectively
revolutionize practices in its supply chain, its industry, or even great
society, it is going to require a very strong trusting relationship with key
players that want to take the leap to more sustainable practices. More importantly, these companies need to
understand how to develop a network or ecosystem of actors that are connected
and interact in ways that can create the necessary creative destruction that
warrant changes in behaviour among all these actors. Any innovation developed in the
transformative strategy is often less valuable than the processes that created
the innovation.

The
organization itself starts to be redefined in the 5th strategy as
the lines that once separated its own boundaries become blurred. That is, in the context of sustainability,
managers that think of the company as a
distinct organization is unhelpful. A
more accurate term to define what is needed for strategy 5 is a meta-organization. A meta-organization are
unique networks of organizations in that they organize actions around a
system-level goal but are not bound by formal authority relations. Meta-organizaitons typically possess lead
organizations that use their prominence or power to take on a leadership role
in pulling together the dispersed resources and capabilities of potential
meta-organization participants. The
innovativeness of meta-organizations as alternative forms of organization to
traditional hierarchical organizations bestows on them an advantage in coping
with the complexity of sustainability. Meta-organizations
are effective at recognizing opportunities through previously unimagined or
unavailable participant connections. The
Fair Labour Association, The Kimberly Process and Wal-Mart Labs are examples
here. The organizations involved range
from businesses, to non-governmental organizations, to community based
organizations and even governmental bodies.

Culturally
then employees view the organization as one piece of a larger puzzle of
organizations who collectively work to achieve sustainability goals. The identity of the organization is largely
tied to the connections it has with key participants of the meta-organization as
employees feel that they are part of something much bigger than their own
organization can accomplish independently.
In addition to performance appraisal mechanisms of Strategy 4, managers
may also be accountable to the networks they create with other participants
while decision-making processes within the firm encompass a wide range of
external actors.

In
summary, research has shown that companies respond to pressures for sustainable
business practices in very different ways, ranging from ignoring and defending
against those pressures to aligning the broader objectives of the company and
even the supply chain. One of the ways
to understand these differences is to consider them in the context of strategic
adoption levels where sustainability in the firm varies according to its role
in positioning the company in the marketplace,
representing lucrative competencies that are difficult to imitate, and creating
a particular culture and identity that aligns with sustainability. It is important to note that
companies will exhibit behaviour that spans some of these strategies. For instance a company might engage in
philanthropic activities that are both related (defensive) and unrelated (denial)
to their operations or they may both defend against the impact of their
operations while still having a department that contradicts the seemingly
careless operations of other departments (isolated). It’s the job of the analyst to put these
initiatives together to pull out a overarching strategy that defines their
positioning, core competencies, and internal culture and identity.

[iv] Bonini, S. “The
business of sustainability”, McKinsey and
Company (2011)

[v] For example,
Coca-Cola states, “Our next step is to embed
sustainability into our strategic planning process”, Nestle explains, “All
business units are now encouraged to embed Creating Shared Value and
sustainability into their business strategy and consumer communication”; Wal-Mart held a
conference on “How to embed sustainability into your organization”; Royal Dutch
Shell chairman said, “Under the recognition of Shell that began when I became
CEO in July 2009, we embedded sustainable development firmly into our
business”; British American Tobacco stated that they are “Working to embed
sustainability in the business” while Philips Corporate Communications says
“You have to embed sustainability in your organization”

2 comments:

It is a fine article. It clearly describes the five strategies that companies adopt. As of today, only a handful of companies are pursuing a genuine embedded strategy. Above all, change of attitude of the shareholders and the business leaders also should happen simultaneously to adopt an embedded strategy and then to proceed to a transformational strategy with the change of attitude in the larger society

Different markets aim at different target audiences so the factors that affect their effectiveness in the industry also differ. The entire process eventually all boils down to the main objective of the firm and what it hopes to achieve as a short-term and a long-term goal. Marketing acts as the first initial step that will influence subsequent actions so that course has to be planned carefully.